5G sounds expensive —

AT&T CEO Randall Stephenson today said that 5G will likely be priced similarly to wireline Internet, with customers paying more for faster speeds.

With 5G, “I will be very surprised if… the pricing regime in wireless doesn’t look something like the pricing regime you see in fixed line,” Stephenson said during an earnings call today. (See transcript.)

Some customers “are willing to pay a premium for 500Mbps to 1Gbps speed and so forth,” Stephenson continued. “And so I expect that to be the case. We’re two or three years away from seeing that play out.”

In general, wireline home Internet services have been priced based on speed—a subscriber pays more for 100Mbps than 50Mbps, for example. Cellular pricing is usually the same no matter what data speeds you get, but customers have to pay for each gigabyte. Meanwhile, mobile carriers have historically imposed far stricter data caps and overage fees than home Internet providers. There’s some overlap between pricing structures, especially as home Internet providers impose data caps, but in general customers have paid for speed in home Internet and for the amount of data in mobile.

AT&T has experience with both types of pricing, as it offers mobile service nationwide and wireline service in 21 states.

On the mobile side, AT&T has re-embraced unlimited smartphone data the past few years. But it also still sells smartphone plans that let customers use less than 10GB of data each month before they face extreme slowdowns to speeds of just 128kbps.

AT&T mobile already has some speed-based differentials in its plans. For example, AT&T limits video streaming to 1.5Mbps (about 480p quality) unless customers pay for a more expensive plan that allows streaming in 1080p. What Stephenson described today would seem to go beyond that, requiring customers to pay more for faster speeds for all online activities.

Pay more… and then more?

A key question for 5G customers is whether they’ll have to pay for more dataandfor higher speeds or if it would just be one or the other. Given that Stephenson says AT&T’s 5G pricing will look “something like the pricing regime you see in fixed line,” we can get some hints from how AT&T treats home Internet today.

The answer—not surprisingly—is that AT&T home Internet customers pay more for higher speedsandfor unlimited data. AT&T fiber-to-the-home Internet costs more for gigabit speeds than it does for 100Mbps, and AT&T also charges different rates for different speeds on its older and slower DSL lines.

But just paying for access to higher speeds doesn’t guarantee that you can use those speeds without paying again for data cap overages. An AT&T home Internet user that actually uses his or her top speeds consistently will blow past AT&T’s home Internet data caps. AT&T home Internet customers get 1TB per month and pay another $10 for each additional 50GB block. Customers can alternatively upgrade to unlimited home Internet data from AT&T for an extra $30 a month.

If 5G mobile services are priced the same way, you’d pay a higher base rate for faster speeds and rack up additional charges if using those speeds pushes you past the data cap.

Another unknown is what throttling policies would apply to 5G. With 4G, AT&T customers who purchase unlimited data can use 22GB a month before facing potential slowdowns, though these slowdowns are only imposed in congested network areas.

Speeds will vary a lot by location

Justifying speed-based pricing on mobile is trickier than with home Internet, because speeds vary as smartphone users move around and as public spaces get more or less crowded. Obviously, mobile carriers can easily cap a user’s speed, preventing them from getting higher speeds even in areas where the network supports it. But the variability of mobile networks means that the highest speeds won’t be available in all areas no matter how much customers pay.

Home Internet services can more easily deliver consistent speeds than mobile networks, and 5G won’t necessarily change that. Early 5G deployments and statements from carriers indicate that the highest 5G speeds will be reserved for small pockets of densely populated areas. That’s because 5G’s highest speeds will be available only on millimeter-wave spectrum, with signals that don’t travel far and are easily blocked by walls and other obstacles. Given that, paying extra for faster 5G speeds won’t necessarily mean you’ll get those speeds all the time.

AT&T’s first 5G users are businesses

So far, AT&T’s real 5G—i.e., not the 4G that AT&T renamed “5G E”—is available in parts of 19 US cities, but it can only be used with a Netgear Nighthawk mobile hotspot. Given that AT&T doesn’t offer 5G smartphones yet, this early 5G service is being used by customers to set up Wi-Fi networks.

Businesses are the first customers, Stephenson told investors today:

From a 5G standpoint, what we’re seeing in terms of adoption tends to be business. In fact, it’s exclusively business for us right now. It’s serving as a LAN replacement product. And we’re having really impressive demand, where we turn up the 5G service from businesses basically saying, “We want to put a router in,” and it becomes their LAN replacement.

AT&T’s 5G launched in December for “select businesses and consumers,” with AT&T saying that it will become widely available this spring. Upon general release, “customers will be able to get the Nighthawk for $499 upfront and 15GB of data for $70 a month on a compatible plan and no annual commitment,” AT&T said at the time.

Verizon is the only major carrier offering 5G on a smartphone, but Verizon’s mobile 5G is only in Chicago and Minneapolis, it’s barely available within those cities, it requires use of a 4G Motorola phone paired with a 5G hardware attachment, it requires an unlimited data plan, and it costs $10 extra a month. Verizon also offers 5G home Internet, based on a non-standard version of 5G, for $70 a month in small parts of a few cities.

T-Mobile has said it will not charge more for 5G.

Stephenson today said that AT&T will have nationwide 5G coverage next year. Because Stephenson said AT&T’s pricing changes for 5G will play out over the next “two or three years,” we’ll have to wait a while to find out exactly how it will compare to 4G prices.